IN 1986, JERRY YANG made the short trip from his home in San Jose, California, to Stanford University where he was enrolled as an undergraduate. At first he thought he might study liberal arts. "I had fantasized about becoming a history or econ major," he says. Yang, however, quickly became caught in the "entrepreneurial lore" of the place, a place where electrical engineers are almost expected to go on and start their own companies. By the 1990s, liberal arts was long gone, and Yang had founded Yahoo, the successful Internet directory.

Yang and Yahoo's ties to Stanford are not unusual. In fact, it is almost impossible to name a leading-edge company in Silicon Valley that isn't closely associated with Stanford: $4.1 billion Cisco Systems, $2.9 billion Silicon Graphics, and $7.1 billion Sun Microsystems were all started by Stanford professors or administrators. Such new kids on the block as Netscape Communications and Rambus also have close ties to the university.

To draw up a similar list of companies that have come from the hallowed halls of the East's best engineering school, Massachusetts Institute of Technology, is not possible. (A 1996 study from BankBoston tried to do just this by linking such powerhouses as HP and Intel to the school. By all accounts, however, these companies have much closer ties to Stanford.)

MIT's runner-up role in promoting entrepreneurship was never supposed to be. In 1861 William Barton Rogers founded MIT as a place to "respect the dignity of useful work." Early on it had close ties to industrialists such as Thomas Edison and Alexander Graham Bell. Long before Stanford became a player, MIT had an established track record of turning research into practical applications. Even MIT Professor Vannevar Bush, founder of what became Raytheon, taught the father of Silicon Valley, Fred Terman, how and why to establish close ties to industry.

MIT's and Stanford's different attitudes toward entrepreneurism can be traced to Terman, an MIT graduate himself. When Terman became an electrical engineering professor at Stanford in the 1920s, he almost immediately set about blowing open the doors to the ivory tower. He had to -- his engineering graduates needed local jobs, and that meant attracting companies to the area.

Terman was the one who introduced the key founders of Varian Associates, now a $1.6 billion company, which did groundbreaking work in radar and microwave technology. Terman also brought two of his students together, William Hewlett and David Packard, who later started HP in a Palo Alto garage. Terman even encouraged William Shockley, co-inventor of the transistor, to come to Palo Alto. (He joined Stanford's faculty in 1963.) Without a Terman, MIT remained supportive of entrepreneurship, but did little to actively foster it.

Stanford, on the other hand, did. It created a licensing office that was a marketer, not just a straight patent office. The office actively pursued discoveries, then marketed them to interested companies and collected royalties. MIT liked what it saw and wanted to change. "We were doing licensing very, very badly," says Lita Nelsen, director of MIT's technology licensing office. The office borrowed Niels Reimers, the brains behind the marketing model at Stanford, while he was on a year sabbatical. The result? Twenty million dollars in royalties last year, but still a far cry from Stanford's $43 million.

Likewise MIT's Sloan Business School is taking a lesson from Stanford's business school, which has long offered classes and programs on entrepreneurship. "I was tired of telling graduates interested in entrepreneurism we didn't have anything for them," says MIT business professor Edward Roberts, who started the Entrepreneurship Center at the Sloan School in 1994.

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